Governor Seeks Big Cuts In California's Spending

By JOHN M. BRODER

Published: January 10, 2004

SACRAMENTO, Jan. 9—
Gov. Arnold Schwarzenegger presented his first budget on Friday, a $76 billion spending plan for the state of California that includes significant cuts in health care, public education and payments to local governments.

Mr. Schwarzenegger acknowledged that the reductions would be painful to many of the poorest Californians but said that he was forced by ''irresponsible'' spending under Gov. Gray Davis and the Democratic-dominated Legislature to make those cuts.

''Over the past five years, the politicians have made a mess of the California budget, and now it's time to clean it up,'' the governor said.

Governor Schwarzenegger, a Republican, said the state faced even more severe cuts if Californians rejected a $15 billion deficit reduction bond that will be on the ballot on March 2. His budget contains no new broad-based taxes but includes increases in tuition at state universities and in a variety of fees, including user fees for state parks.

''We will not raise taxes,'' Mr. Schwarzenegger said. ''Higher taxes will punish working families. It will kill jobs and drive businesses away. It will stall the recovery we need to pay for essential programs.''

Mr. Schwarzenegger presented his budget plan in a direct and somber tone, with little of the levity that has marked many of his other public appearances since taking office in November. He spoke in the same auditorium where California's secretary of state, Kevin Shelley, made the new governor's improbable candidacy possible last July, when he announced that recall organizers had gathered more than enough signatures to put the recall question on a fall special election ballot.

The new governor promised in his campaign and in his State of the State address earlier this week to ''blow up'' government agencies that were not performing and make state government more efficient. But there was little evidence of a major restructuring in the budget blueprint presented on Friday. Some analysts called it a moderate document that could have been prepared by Mr. Davis, whom Mr. Schwarzenegger replaced in November.

The general fund portion of the budget came to $76 billion, a drop from the $78 billion the state anticipates spending in the current year, which ends June 30. Including special earmarked funds and bond revenues, the proposal projects total state spending next year of $99.1 billion.

The budget includes a modest increase in state tax revenue over the current year, based on projections of an improving economy. It also includes $500 million in potential revenue from Indian casinos. Under agreement with the state, gaming tribes currently do not pay taxes to the state but pay modest amounts to offset the local impact of the casinos. Mr. Schwarzenegger is hoping to negotiate a deal that would allow expansion of gambling operations in exchange for payments to the state.

The governor anticipated criticism from advocates for the poor, university officials and representatives of local government, who are all seeing their programs cut.

''Everyone will be worried about what this means,'' Mr. Schwarzenegger said. ''What it means is we have to cut back for the next two years until we get out of this crisis. It's that simple.''

Mr. Schwarzenegger promised during the campaign not to cut financing for education, and this budget does include a $2 billion increase in spending for kindergarten through high school classes next year. But schools would have been entitled to $2 billion more than that under the state's complex education financing formula. Mr. Schwarzenegger negotiated a deal with the state's teachers' union to make that reduction with the promise that schools would not face further cuts in later years.

The budget proposed reducing the number of incoming freshmen and raising fees for all students at the University of California and California State University systems.

The governor's proposal does not contain any increase in sales or income taxes, but relies on fund shifts, borrowing and one-time accounting moves to cover more than half of the $14 billion shortfall between spending and projected revenue for the fiscal year beginning July 1. The plan anticipates $3 billion in proceeds from the $15 billion bond on the March ballot. The remainder of the bond proceeds will be used to cover deficits in the current fiscal year.

The governor's plan cuts spending by more than $4.6 billion, with the largest reduction, roughly $2.7 billion, coming from health and human services programs. The proposal limits the number of new children enrolled in health programs. It also raises deductibles and co-payments for recipients of Medi-Cal, the state's name for the Medicaid program, and cuts payments to medical providers.

Democrats and advocacy groups said that Mr. Schwarzenegger was singling out the most vulnerable populations for the deepest cuts.

Anthony Wright, executive director of Health Access California, a consumer group, said: ''Under this proposal, hundreds of thousands of children and others would be denied basic care, and millions of Californians would have to pay more to get basic health services. The governor is putting the burden of this crisis on low- and moderate-income families, rather than restoring the tax brackets for himself and other wealthy Californians, so they can share in the solution.''

Representatives of county governments, which would lose $1.3 billion, also voiced opposition.

Steve Szalay, executive director of the California State Association of Counties, said that counties delivered vital services, including public safety, sanitation and health programs. He said the proposed cuts, on top of more than $1 billion in reductions last year, would be devastating.

Democrats in the Legislature were somewhat measured in their reactions. They realize that Mr. Schwarzenegger's resounding victory last fall and his ability to communicate directly with the public have changed the political calculus in Sacramento. California's constitution requires a two-thirds majority to pass a budget, and while Democrats dominate both chambers of the Legislature, they do not hold two-thirds of the seats.

Under Mr. Davis, most Democrats expressed belief that the budget could not be balanced without raising new revenue. Now, however, they appear willing to try.

''If he can find a budget solution that more equitably distributes the pain without raising taxes,'' said Speaker-elect Fabian Nuñez, a Democrat from Los Angeles, ''then we're willing to talk.''

The governor said he hoped he could get Democrats to go along with his proposals, as they have for much of his early agenda. In a lighter moment in his news conference he said, ''I don't have a specific plan on how I'm going to deal with each one of the Legislators and how many cigars I need to smoke with them when I get together with them and all of those kinds of things.''

Photo: Gov. Arnold Schwarzenegger presented his first budget proposal, which includes reductions in spending for health care and education. Mr. Schwarzenegger said his predecessor's actions forced him to make the cuts. (Photo by Associated Press) Chart: ''Reducing California's Deficit'' The California budget proposed yesterday would save $14.36 billion through budget cuts, sale of bonds and other funding shifts to reduce the state's deficit for the 2004-05 fiscal year. The main sources of the savings: BILLIONS OF DOLLARS $3.0: Revenue from bonds 2.7: Cuts in health and human services programs 2.0: Cut of payments to schools this year 1.3: Reduced contributions to local governments 5.3: Cuts in other programs and other sources of savings (Source by California Department of Finance)